Global Palm Resources - Holdings Ltd (OCBC)

Maintain HOLD

Current Price: S$0.21

Fair Value: S$0.21

FC leaves after two months. Global Palm Resources (GPR) has recently announced that its group financial controller (FC) Zhang Xiaoyu has left the company to "pursue other career opportunities"; this after being appointed to the position on 5 Jul 2011, or just slightly over two months on the job. Its previous FC Chua Cheng Hian was with the company for just under two years. But unlike the previous FC's leaving, GPR did not immediately announce a replacement, suggesting that Zhang's departure was quite sudden. However, GPR does not expect to experience much of a disruption, saying that its CFO (currently based in Indonesia) can handle the work. Nevertheless, we note that the latest staff movement does not inspire confidence, especially in the current volatile market.

Expansion again very modest in 2Q11. Meanwhile, we continue to remain concerned about the slow pace of its expansion. As a recap, GPR added another 239 ha of new planting in 2Q11, adding to the 205 ha of new planting in 1Q11, and this brings its total planted area to 12,673 ha. But given management's plan to plant 1.6-1.7k ha this year out of its existing 3850 ha land bank, we note that 1H11's new plantings of 445 ha only made up 27% of its target, suggesting that GPR is at risk of not being able to meet its target.

Slow expansion will affect long-term growth. Given the still-resilient CPO (crude palm oil) prices thus far, we believe that GPR is still on track to meet our FY11 and even FY12 estimates. However, the slow pace of expansion could potentially curb its longer-term growth prospects, especially since 81% of its plantations are already in the prime segment (7-year to 18-year) with an average age of nearly 15 years old; and yield typically drops off after 18 years and these palms would need to be replaced. Meanwhile, GPR is still in talks to potentially acquire some small brown-field plantations owned by foreigners in Sumatra. But we understand that GRP seems to be more interested in acquiring their land as these plantations are typically not well-run with mostly young trees.

Maintain HOLD with S$0.21 fair value. As we only expect the FC's resignation to have a modest negative short-term impact on GPR; hence we maintain our HOLD rating and S$0.21 fair value. But the longer-term issue remains its ability to aggressively expand its plantation as set out in its IPO prospectus.